Neogen Chemicals Limited IPO

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1) They are one of India’s leading manufacturers of bromine-based, and lithium-based, specialty chemicals. Specialty chemicals are those chemicals that impart different properties to a variety of products.

2) Specialty chemicals, including bromine and lithium-based compounds, are used in the following industries with indicative Revenue contribution:

a) Pharmaceuticals = 58%
b) Agrochemicals = 15%
c) Engineering = 17%
d) Polymer = 3%
e) Electronic= 1% and others= 6%

The company market and sell the Products in India and export the Products primarily to Europe, USA, and Japan.

3) The company which was producing few Bromine and Lithium compounds at the commence of its operation in 1991, today, expanded the range of products and, presently, manufacture an extensive range of specialty chemicals which find application across various industries in India and globally.

As on February 28, 2019, they have manufactured an aggregate of 198 products comprising 181 organic chemicals and 17 inorganic chemicals.

4) The company has two manufacturing plant and third is at development stage:

a) Mahape, Navi Mumbai in Maharashtra (Mahape Facility).

b)  Karakhadi, Vadodara in Gujarat (Vadodara Facility).

c) Presently, they are developing a green-field manufacturing unit in Dahej SEZ, in Gujarat (Proposed Dahej Facility) and are also proposing to expand the operations in Karakhadi, Vadodara (Proposed Vadodara Facility).

5) They have 2 R&D facilities, one each in at Vadodara and Mahape manufacturing units. They have dedicated 20-member R&D team constituting around 10% of our total workforce.

Since the commencement of the dedicated R&D department in December 2001, the Product portfolio has grown from around 20 products in 2001 to 198 products at present.

6) Apart from the specialty business, the company is also looking into contract manufacturing to increase their portfolio.

Contract Manufacturing: Under this arrangement, the company manufactures different products as per the specific demand of the customer. They are in discussions with various companies in Europe and Japan to develop their proprietary products for which they have already executed non-disclosure and secrecy agreements.

Industry Overview

1) Specialty chemical is a key segment, valued at $743.80 billion in 2017 and expected to grow at CAGR of 5.7% up to 2022.

2) Agrochemicals dominated the specialty chemicals revenue pie, accounting for a 21% share in 2017. The use of agrochemicals in fertilizers, herbicides, insecticides, and pesticides is rising because of increasing demand for agro products owing to rapid industrialization and population growth globally.

3) The polymers and plastic additives segments comprised the second-largest revenue share at 13.5%.

4) Market share of specialty chemicals of key countries in 2017:

a. China = 40%-44%
b. USA = 14%-17%
c. Germany = 4%-7%
d. Japan = 4%-5%
e. India = 2%-3%.

5) Some of the key challenges faced by the global specialty chemicals market are the commoditization of products, unavailability of raw materials, and regulatory issues and environmental concerns. China is considered to have the worst air quality in the world following its rapid industrialization, fuelled by coal – the cheapest but highly polluting energy source, which the country has in abundance. With the government clampdown on polluting generating industries in several cities across the country, China’s production of chemical raw materials and chemical products grew at a more moderate on-year pace between January and October 2017.

Objects of the Neogen Chemicals Limited IPO:

a) The Issue comprises of Fresh Shares( 70 Cr)  and OFS(62.35 Cr). b) The objects of the Fresh Issue are: 1. Prepayment or repayment of all or a portion of certain borrowings availed by our Company. 2. Early redemption of 9.8% FRCPS. 3. Long term working capital. 4. General corporate purposes.

Neogen Chemicals Limited IPO Details:

Open Date: Apr 24 2019
Close Date: Apr 26 2019
Total Shares: 6155813
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 132.35 Cr.
Lot Size: 65 Shares
Issue Price: ₹ 212-215 Per Equity Share
Listing At: NSE,BSE
Listing Date: May 08 2019

Financials of Neogen Chemicals Limited IPO:

 
Particulars(Million) 2014 2015 2016 2017 2018 9MFY19 Post Issue
Balance Sheet Item
Share Capital 45 45 200 200 200 200.79 233.34
FV 10 10 10 10 10 10 10
Net Worth 195.93 234.87 275.49 419.66 500.62 614.87 621.37
Book Value 44 52 14 21 25 31 26.6
Long-Term Debt 47.49 47.33 47.70 367.61 384.95 440.62 440.62
Short-Term Debt 189.96 183.36 200.60 301.49 412.23 677.02 677.02
D/E 1.21 0.98 0.90 1.59 1.59 1.82 1.79
P/L Items
Revenue 803.14 924.8 1090.47 1217.75 1646.75 1596.87
EBITDA 120 136 143 203 297 276
EBITDA Margins 14.9% 14.7% 13.1% 16.7% 18.0% 17.3%
Profit 36.67 49.74 51.45 72.13 105.32 123.02 164(P)
PAT Margins 4.6% 5.4% 4.7% 5.9% 6.4% 7.7%
EPS 1.57153 2.131653 2.20 3.09 4.51 5.27 7.02(P)
Key Ratios and Valuation
RONW 18.7% 21.2% 18.7% 17.2% 21.0% 20.0% 26.4%
P/E 31
P/B 8.1
Mcap 501 Cr
Mcap/Sales 3.15
EV 612 Cr
EV/EBITDA 16.63
IZ Review 1. The Company has shown excellent CAGR growth of 22.89% in Revenue in the last 3 years. 2. The Company has shown excellent CAGR growth of 43.49% in PAT in the last 3 years. 3. The EPS for FY18-19 by Annualizing 9MFY18 is close to 7.02. 4. The P/E based on above EPS comes out to be 31 which is on higher side as compared to its listed peers. 5. The D/E of 1.82 based on FY18 financials looks on higher side.

Comparison With Peers:

Particulars(Cr) Neogen Chemicals Aarti Industries Navin Fluorine Paushak Limited
Balance Sheet Item
Share Capital 20 40.65 9.87 3.21
FV 10 5 2 10
Net Worth 50 1515 969 113
Book Value 3 194.00 196.00 352.02
Long-Term Debt 38.50 897.00 0.00 0.00
Short-Term Debt 41.20 986.00 0.00 0.57
D/E 1.59 1.24 0.00 0.01
P/L Items
Revenue 164.00 3701.00 966.00 106.00
Revenue Growth in 3 years 22.89% 16.52% 20.98% 15.1%
EBITDA 29.7 661 304 32.08
EBITDA Growth in 3 years 44.12% 10.54% 46.32% 29.78%
EBITDA Margins 18.0% 17.9% 31.5% 30.3%
PAT 10.532 316 178 21.47
PAT Growth in 3 years 43.49% 11.98% 43.87% 32.29%
PAT Margins 6.4% 8.5% 18.4% 20.3%
EPS 4.51 38.92 36.24 66.00
Key Ratios and Valuation
RONW 21.0% 20.9% 18.4% 19.0%
P/E 47.67 41.00 19.56 33.33
P/B 8.6 8.35 3.59 6.25
Mcap 501 Cr 14040 Cr 3510 Cr 678 Cr
Mcap/Sales 3.15 3.79 3.63 6.40
EV 612 Cr 15860 Cr 3489 Cr 678 Cr
EV/EBITDA 16.63 23.99 11.48 21.19
IZ Peer Review 1.  Every peer showed in DRHP manufacture a different kind of Speciality chemicals. 2.  Aarti Industries is a leading Indian manufacturer of Speciality Chemicals and Pharmaceuticals with a global footprint. Chemicals manufactured by Aarti are used in the downstream manufacture of pharmaceuticals, agrochemicals, polymers, additives, surfactants, pigments, dyes, etc. The Neogen Chemicals can be easily compared with Aarti Industries as both caters to similar industries. Based on FY18 Financials, P/E of Aarti Industries is close to 41 Based on FY-18 Financials, Neogen Chemicals is asking P/E of 47.

Recommendation on Neogen Chemicals Limited IPO:

Review and Recommendation of Neogen Chemicals from IZ Team are: 3/10. [ The company has not left anything on the table for investors to grab ]

Lead Manager of Neogen Chemicals Limited IPO:

  1. INGA Capital Private Limited

Registrar of Neogen Chemicals Limited IPO:

  1. Link Intime India Private Limited

Bid Details of Neogen Chemicals Limited IPO as on
26-Apr-2019 20:30:00 IST

No.of shares offered No. of shares bid No. of total times
1,228,094 37,448,580 30.49
930,283 105,942,525 113.88
2,170,661 34,860,475 16.06
- - -
- - -
4,329,038 178,251,580 41.18
No.of shares offered No. of shares bid No. of total times
1,228,094 32,220,500 26.24
930,283 38,951,510 41.87
2,170,661 26,111,345 12.03
- - -
- - -
4,329,038 97,283,355 22.47
No.of shares offered No. of shares bid No. of total times
1,228,094 5,228,080 4.26
930,283 66,991,015 72.01
2,170,661 8,749,130 4.03
- - -
- - -
4,329,038 80,968,225 18.70

Total Number of Applications in Retail Category: 5,02,000 Approx

Application-wise Subscription in Retail Category: 15.15X

Discussion on Neogen Chemicals Limited IPO:

    Book partial profit(50%) and hold rest.

    Listing date is mentioned as 8th May on Chittorgarh.com site whereas it is mentioned as 6th May on your site. Which is correct. Please confirm.

    Dear moderator please confirm book value of the company, upper side it is 31 and in comparison with peer it is written 3.

      It was 25 in FY18. It was inadvertently put up as 3 in the analysis.

    Neogen Chemicals IPO

    Day 3 at 7:10PM

    The following data is assuming the shares will be issued at @215/- (upper price band)

    QIB*: 30.42X (*Excluding Anchor)
    NII: 114.73X
    RII: 16.06X
    Total: 28.92X

    Applications: 4,98,500 Approx
    No. of Applic-wise: 15.04X

    GMP 52 +/- 1
    Kostak 225/-

    Neogen Chemicals Ltd., : Last Day Subscription Fig at 4.00 P.M.
    QIB* : 30.42×Closed
    HNI :114.73×Closed
    RET : 13.34×
    TOTAL : 39.95×
    FORMS : 410,084
    Ret Appln Wise : 12.37×
    *Excluding Anchor

      Is there any chance of increase in GMP as it has subscribed more than expectation??@MW sir

    Very small issue and chances of allotment are very tough.

    NII boom boom. This would be an interesting listing.

    *Neogen expectation QIB 6x Retail 12x.. HNI 2000 Cr Book*

        I am not applying hemant ji but having said that anything can happen in Neogen as the issue size is very small and can easily be manipulated. Risky investors can take part.

        Dear moderator please confirm book value of the company, upper side it is 31 and in comparison with peer it is written 3.

    The size of IPO is less than 250 Cr . So it will in list T Group Category. The price can go maximum +-5% after initial price discovery

    ONE CAN SUBSCRIBE FOR 8-10 % GAIN.
    AS ITS A SMALL IPO LESS CHANCES OF LISTING BELOW RISKY INVESTOR CAN TAKE CHANCE I AM GOING FOR IT IF GET GOOD SUBSCRIPTION WILL EXIT AT LISTING .

    *************(fwd)******************

    Few concerns on Neogen IPO :
    1) doubling of capacity while existing capacity utilisation is 64%
    2) Lengthy receivable days
    3) purpose of ipo is just repayment of debt and working capital
    4) complex business to understand
    5) even with monopoly and 30 years existence not able to scale up till now
    6) forex risks
    7) sudden jump in revenues in IPO year and increase in inventory
    8) High valuations demanded like leaders aarti industries

      Reply from Management.

      1) doubling of capacity while existing capacity utilisation is 64%

      This was because in first six months of FY-19 Baroda plant worked at very low capacity i.e. from June, July and part of August, as shared during Mumbai meet. If you see for six months it was 53% and 9 months it is 64% , so 3rd quarter capacity utilisation was above 80% which is theoretical optimum utilisation for the plant of multi product / batch Pharma intermediate with corrosive chemistries. So now all plants at working at full capacity. Since it takes time to double capacities, we need to start planning and activating now. The lithium section is at full utilisation for several years.

      2) Lengthy receivable days

      It’s around 60-70 days which is in line with other players in the Industry. In some years at the end of the year it looks higher because new capacity came in last quarter – so more sale in last quarter. Eg in FY 17 and FY 18 or 3rd quarter of FY 19 where we had improved capacity utilisation.

      3) purpose of ipo is just repayment of debt and working capital

      Basically this will reduce company’s old loans which in turn will ensure company can maintain comfortable debt levels while doubling capacity and beyond that. Company already has one term loan partly used – which will be used for the initial capex required for doubling. This is not being repayed. This deleveraging will help company to take addition debt in future for growth.

      4) complex business to understand

      Company is making building blocks for making any active Pharma / Agro / perfumery ingredients. So most API manufacturing companies will use them. Company HAS about 198 molecules of which 110-120 are sold commercially depending on customer need at any moment.

      5) even with monopoly and 30 years existence not able to scale up till now

      Neogen started operations with very small capital and just 4 products in 1991. It grew multifold during the first decade however, there were challenging times from 1999 to 2005, as upto 1999 – there was dependence on few molecules. Number of molecules – advanced chemistries started only after 2007. Company did max capacity in Mahape by 2012 – subsequently had problem of space. It took more time to get new land, build a good management team and increase capacity because – first time going multi location. After acquisition in Dec 16 old plant which added capacity – growing nicely from 110 Cr to 160 Cr (Excise and GST free numbers ) in FY 18 and 159 crs in 9 months FY-19.

      6) forex risks

      Company had natural hedge as it’s Exports and Imports are almost the same. Company also hedges it’s net exposure or has back to back arrangements to pass on difference – you can see financial notes – usually not much outstanding positions.

      7) sudden jump in revenues in IPO year and increase in inventory

      Till 2016 there was capacity constraint and after acquisition of Baroda plant the additional growth came with higher revenues. Company did further capex in FY 18 and first half FY 19 and improved capacity utilisation there after giving higher revenue growth. Even in FY 18, excise and Gst free sales (given in DRHP / RHP) grew from 110 Cr to 160 Cr and again in fist 9 months doing almost same as last year even at lower utilisation. Increase in inventory is in line with increase in sale and number of days for FY 19E would be in line.

      8) High valuations demanded like leaders aarti industries (fwd)

      If you look at FY 16 – with only Mahape plant – (when company did 100 Cr at peak utilization) – and existing capacity of Baroda and current margins – and impact of IPO money in reducing interest cost going forward -with these changes the current year multiples will be significantly lower as compared to peers.

      Neogen Chemicals IPO – *Market Estimates of oversubscription*:

      RII = 2L Forms = 6.03X Applic. wise (Avg allotment of ~10.77 shares per lot)
      NII = 2.5K Crs. = ~126X

      Interest cost @7%p.a. for 7days = 28.863paise for 1X

      Thus, for NII the costing = 126 X 28.863paise = Rs.36.35 per share (GMP)

      And, for RII the costing = 36.35 X 10.77 = Rs. ~425/- (Kostak)

      Neogen Chemicals IPO – *GMP Expected*
      GMP 40/-
      Kostak 425/-

    Hello admin at least please wrote a price band on that details table
    Price band : 212-215

    It’s look like clear avoid as of now,
    Let see the subscription figure than decide.

    The issue price of 215 is too much costly.

    The IPO should be priced at not more than 150.

    Sir
    Ur advice on
    Vodafone idea right issue pls

    Apply or not as I m shareholder

      We will come out with the research call by tomorrow.

    *Neogen Chemicals Ltd* IPO

    *24-26* April

    Price Band : *212-215*

    Issue Size : *132.35 Crores*

    Retail : *35%*

    Bid Lot : *65 Shares*

    Retail Application Amount : *Rs. 13,985*

    Retail Requirement for 1 Time : *33,146 Applications*

    Neogen Chemicals IPO – Issue Information *(TENTATIVE)*

    Issue Opens on: 24 April 2019
    Issue Closes on: 26 April 2019
    Issue Type: Book Built Issue IPO
    Issue Size: 65,84,210 Equity Shares
    Face Value: Rs 10 per Equity Share
    Issue Price: Rs.180 – Rs.190 per Equity Share
    Market Lot: 78 shares
    Listing At: NSE, BSE

    💡 *Neogen Chemicals IPO – Schedule*

    18th April – Price Band to be Announced

    23rd April – Anchor List

    24th April – Offer Opens
    26th April – Offer Closes

    03rd May – Finalisation of Basis of Allotment

    06th May – Unblocking of ASBA

    07th May – Credit to Demat Accounts

    08th May – Listing on NSE & BSE

    *Listed Industry Peer Group*

    Aarti Industries
    Atul Industries
    Navin Flourine
    Paushak
    Vinati Organics